China Seafood Play: Fish on the 14th Floor

Alex Frew McMillan, Special to CNBC.com

Friday, 12 Mar 2010 | 11:00 AM ETCNBC.com

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On the 14th floor of an old godown, or warehouse, in a shabby industrial neighborhood of Hong Kong, dozens of fish swim slowly around a 7,000-liter tank under ultraviolet lights. Periodically, a feeder arm drops a few pellets into the water and the fish, a spotted yellow-brown species called a mouse grouper, cluster underneath the chute, gulping the food down.

It’s a bizarre setting for raising fish, high inside a building occupied by trading firms exporting

Photo by: Alex Frew McMillan

plastic and electrical goods. But the company, Marine Culture Technology, hopes its technique can sate the growing hunger for live reef fish, at first in greater China.

Marine Culture Technology, which operates under the brand name OceanEthix, is supplying restaurants in Hong Kong on a trial basis and just began a pilot scheme to stock a grocery chain in mainland China. Its technology could reshape an industry that is well on its way to ruin.

“This is the future,” one private-equity investor who has looked at the company says. “We’ve fished out the oceans, pretty much. This allows you to get live product inland, and it’s very clean technology.”

Many Chinese seafood restaurants have banks of tanks at their front doors, full of pomfret, pompano, flounder, eel, abalone, shrimp and clams, not to mention huge species like the Napoleon wrasse and giant grouper.

There aren’t hard numbers on the size of the trade, since imports of live fish aren’t tracked separately. But OceanEthix estimates around 40,000 tons of fish worth $810 million flows into Hong Kong, Macau and China each year. That’s not to mention the live fish shipped to similar restaurants around the world.

“It’s a massive problem,” Geoffrey Muldoon, the live reef fish trade strategy leader for the World Wildlife Fund, explains. “There is overfishing of target stocks in the Coral Triangle, and it has been going on for two or three decades, and primarily for export to Hong Kong and increasingly China, as China becomes wealthier.”

The trade is very wasteful. Many fish caught now are juveniles that never get the chance to reproduce. Then they are shipped by air or by sea. They are generally sedated, and they aren’t fed to prevent them producing waste ammonia, which makes the fish taste bad. Plenty die en route.

“A lot of them get pretty bashed about, and there is a high turnover rate,” Yvonne Sadovy, a professor of marine biology at Hong Kong University and an expert on fisheries, says.

OceanEthix uses technology developed for fresh-water fish by an Australian fisherman in the late 1980s. It has taken years to work out how to adjust the operation for salt water. The present company was founded in 2004 to sell live reef fish.

OceanEthix can grow out fish from fingerlings to restaurant size in its tanks. Since the fish are bulked up near their market, the carbon footprint is lower. Many fewer fish die en route, and they’re less stressed. The company uses oysters to filter the water, meaning there’s no waste.

The company currently only has two tanks in Hong Kong, and each can hold around 1,000 fish at capacity. “To sell the product is not a problem,” Lloyd Moskalik, the company’s Australian-born managing director, says. “It’s a question of just gearing up.”

It plans to rent space for 10 tanks in the Hong Kong suburbs. By the second half of this year, OceanEthix should boost sales around tenfold, from $10,000 per week. “We’re looking to get up to around $100,000, and we can’t do that until we expand -- we are running at a maximum,” Moskalik says.

Photo by: Alex Frew McMillan

At first, it will sell mouse grouper because they fetch the highest price, up to $50 per pound. It would then add coral trout, another highly priced species, and then fast-growing, cheaper species like green grouper.

The real goal is China. The grocery-store chain CP/Lotus, a Thai-owned company that runs 75 supermarkets in mainland China, recently started a pilot program to sell OceanEthix fish in its flagship store in Shanghai.

It is too early to tell if it’s a success – the program only began on January 25. “Most days the buyers will be foreigners or very good income families,” Effie Xiang, the general manager of corporate communications for Lotus, says. “The price of the product is still high for most customers.”

But Lotus hopes to sell the fish in other stores. “We would like more people to try it,” Xiang says. “It is a premium product and not every store can have this kind of seafood.”

Tapping a market of 1.3 billion mouths could help it create a truly sustainable system. “There have been successful programs but nothing at a commercial scale as yet,” Moskalik said. “We are bringing it all together.”